City of Yonkers v. Downey Condon v. Same 544

• Decision Date: 22 April 1940
• Docket Number: 545,Nos. 542,543,s. 542
• Citation: 60 S.Ct. 796,309 U.S. 590,84 L.Ed. 964
• Parties: CITY OF YONKERS v. DOWNEY (two cases). CONDON, Mayor, et al. v. SAME (two cases). , and 544
• Court: U.S. Supreme Court

309 U.S. 590

60 S.Ct. 796

84 L.Ed. 964

CITY OF YONKERS

v DOWNEY (two cases).

CONDON, Mayor, et al.

v. SAME (two cases).

Nos. 542, 545, 543, and 544.

Argued Feb. 29, 1940.

Decided April 22, 1940.

Rehearing Denied May 20, 1940.

See 310 U.S. 656, 60 S.Ct. 1071, 84 L.Ed. —-.

Messrs. Leonard G. McAneny, of Yonkers, N.Y., and E. J. Dimock, of New York City, for petitioners.

[Argument of Counsel from pages 590-592 intentionally omitted] Mr. George P. Barse, of Washington, D.C., for respondent.

Mr. Justice McREYNOLDS delivered the opinion of the Court.

By these companion suits, begun during 1936, the Receiver of The First National Bank and Trust Company of Yonkers ('The Bank'), seeks to recover fifty per centum of deposits withdrawn by petitioners from the association while insolvent. Thus, it is said, they obtained unlawful preferences within the meaning of the National Banking Act.¹ From corporate assets, general creditors have been paid dividends amounting to fifty per centum of their claims—forty, December, 1933; ten, November, 1937.

The Bank was located in New York. In each cause the points of law and fact are substantially alike. It will suffice to consider them as presented by the Record in No. 542.

Petitioner's deposits with The Bank, March 4, 1933, amounted to $277,000. To secure this and other smaller public ones, bonds of the association totalling $535,000 were in pledge.

The Governor of New York proclaimed Saturday, March 4th and Monday, March 6th, 1933, bank holidays. Later the President and the Governor extended such holidays through March 9th. The Bank was not opened for unrestricted business after March 3rd. A Conservator, appointed March 20th, remained in control until January 23, 1934, when a Receiver took charge.

Between March 9th and 20th, 1933, petitioner withdrew deposits amounting to $89,000; between March 20th and 28th, $67,000. On the latter day, under direction of the Conservator, petitioner's remaining deposits were paid and The Bank retook the pledged bonds.

A jury having been waived the cause was tried to the court upon pleadings and evidence. Among other things it found—

'The pledge of assets by The Bank to secure the deposits was ultra vires and unlawful.

'The Bank was insolvent March 6th, 1933, and as of that day the rights of creditors became fixed.

'The payments of deposits to petitioner were not allowed by any Presidential Proclamation or Executive Order. They were made voluntarily under mistake of law by an officer of the United States and are recoverable. Also they were made with intent to give petitioner preference over other creditors.

'No statute of New York confers upon state banks general power to pledge assets to secure deposits. They have no such power under the common law of New York.'

Judgment went for the Receiver for fifty per centum of the amounts withdrawn by the petitioner after March 9, 1933, with interest, etc.

The Circuit Court of Appeals affirmed this action, 2 Cir., 106 F.2d 69. It held all withdrawals after March 9th occurred when the facts indicated The Bank would be unable to pay depositors in due course and that adequate evidence supported the trial court's finding of an intent to prefer. We find no reason to disregard these findings by two courts and accept them as correct.

The Circuit Court of Appeals further held national banks have no implied power to pledge assets to secure deposits; that here The Bank was not empowered so to do by the Act June 25, 1930²; that the pledge might be rescinded without return by the Receiver of the sums withdrawn. With these conclusions we agree.

Unless empowered by the Act June 25, 1930 or concerning federal funds (not here claimed) as in Inland Waterways Corp. v. Frederick J. Young, Receiver, 309 U.S. 517, 60 S.Ct. 646, 84 L.Ed. —-, March 25, 1940, national banks may not secure deposits by pledge of assets.

Texas & Pacific Ry. v. Pottorff, 291 U.S. 245, 253-255, 54 S.Ct. 416, 417, 418, 78 L.Ed. 777, and Marion v. Sneeden, 291 U.S. 262, 54 S.Ct. 421, 78 L.Ed. 787, authoritatively interpreted the National Banking Act and approved the view that under this, a national bank possesses no inherent power to secure deposits, public or private, by pledging assets, and that such a pledge is both ultra vires and contrary to public policy. 'The measure of their powers is the statutory grant; and powers not conferred by Congress are denied.' Also, that in case of insolvency, assets so pledged, may be reclaimed without payment of the deposits. 'To permit the pledge would be inconsistent with many provisions of the National Bank Act which are designed to ensure, in case of disaster, uniformity in the treatment of depostors and a ratable distribution of assets.' The results in these causes was not influenced by consideration of local law.

We cannot accept the suggestion of counsel for petitioner that the cited opinions merely declare a pledge of assets ultra vires and leave the consequences to be determined by the law of the state where it occurs. This view is not in harmony with the language of the opinions nor with the general purposes of the National Banking Act there pointed out.

Under the common law as interpreted in New York, pledge of securities by a state bank to secure deposits is 'contrary to law and beyond the power and authority vested in the officers.' Although forbidden, such a pledge will not be set aside unless deposits made in reliance upon it are first repaid. State Bank of Commerce v. Stone, 261 N.Y. 175, 187, 188, 184 N.E. 750, 87 A.L.R. 1449; City of Mount Vernon v. Mount Vernon Trust Co., 270 N.Y. 400, 406, 1 N.E.2d 825.

The Act of June 25, 1930 permits national banks to give...